Retail sales were flat in March, well below Statistics Canada’s preliminary estimate of a 1.4% gain. Making the story softer was the fact that volumes pulled back by 1.0% month-over-month (m/m).
Statistics Canada’s flash estimate for April points to a 0.8% monthly gain, but note that consumer prices were also up significantly in the month.
Sales were down in 6 of 10 provinces, with notable declines in Quebec (-0.8% m/m), B.C. (-0.5%) and Saskatchewan (-1.6%). On the flipside, sales rose in Alberta (+1.8%) and Ontario (+0.3%).
Looking at the individual categories, receipts at gasoline stations jumped 7.4% m/m in March, with volumes up 3.1%. Meanwhile, sales at motor vehicle and parts dealers fell 6.4% – the largest drop since April 2020. On-going input shortages likely weighed on sales during the month. Notably, motor vehicles and parts dealers was the only category where sales declined during the month.
Core sales, which exclude autos and gasoline, were up a solid 1.5% m/m:
- Robust gains were recorded in building material and garden equipment suppliers (+3.7%), miscellaneous store retailers (+5.9%), and clothing and accessories stores (+2.2%).
- E-commerce sales declined 1.9% m/m in March and were down 24.6% year-over-year. They accounted for 4.9% of total retail trade.
Key Implications
Although retail spending came in well shy of the preliminary estimate, sales at motor vehicles and parts dealers were entirely responsible for the soft nominal print. In volume terms, the story was similar with spending up in nearly all categories. This narrowly based drop takes some of the sting of away from the report and points to a healthy job market and excess savings continuing to support goods spending outside of the auto sector – which is being plagued by input shortages.
We think consumer spending will hold up reasonably well in the second quarter, reflecting the lingering tailwind of easing public health restrictions, significant pent-up demand, and a healthy labour market. However, higher prices and interest rates will begin to weigh on household budgets in the second half of the year, prompting consumers to tighten their purse strings. Retail sales may also see some weakening as consumption continues to shift away from goods and toward services, such as travel and hospitality. Indeed, recent earnings reports from large retailers reflect some anticipated softness ahead due to inflation pressures and a substitution to services spending.
